The passage is in an interview with Graham Duncan, founder of East Rock Capital who explains that it’s a mental model he is increasingly using in his work with entrepreneurs.

The excerpt begins with a nice introduction to the source principles. For anyone working with founders (like investors) it’s incredibly useful to break through the notion that co-founders started a business together, and instead acknowledge which of the group is the source – the one originating founder. That individual will have a different and special intuitive connection to the initiative which plays an enormous role in the vitality of the initiative as it grows. As Duncan recognises, this is also incredibly important during a succession process when a founder-CEO leaves a business they started and hands over the reigns.

There’s an important aspect that Duncan doesn’t get quite right. He mentions a study which showed that companies perform better when an outgoing founder-CEO completely leaves the board and doesn’t hang around to mentor their successor.

I wouldn’t dispute the data here, however I would reframe the insight. Firstly, it makes no difference whether or not a founder remains on the board formally, or if they mentor their successor. What does matter is whether or not there has been a succession of source from one to the other. This is the deeper level of succession beyond the formal artefacts like job titles and share certificates. Metaphorically, it’s like ‘passing the torch’ for the initiative – a heartfelt handing over of full authority, responsibility and power. If this has happened, a new relationship can be established where the old source can help the new one however needed which could be through mentoring or serving on the board, but the new source will have fully assumed the natural authority that the original founder once had.

I would bet that in the companies where performance suffered after a founder-CEO handed over to a successor yet still stayed around, the real problem wasn’t that they stayed on the board, but that they hadn’t completed this deeper level of succession. Perhaps they didn’t truly want to leave. This leaves the new CEO weak and lacking the intuition which only the source has. So the solution to a situation like this isn’t just to remove the founder from the board, but to make sure that the succession process is completed.

It’s interesting that Duncan mentions Microsoft as an example of this. It’s a story that Peter Koenig, Charles Davies and me have been following with interest. Our take on it is that when Steve Ballmer took over from Bill Gates, he assumed the formal title of CEO, but the role of source was never passed on. Creatively, Microsoft went into decline. Eventually Gates (who from a source perspective had never left) took full responsibility again and this time around there does seem to have been a full succession to Satya Nadella. The company seems to have a renewed creative energy and Nadella seems to have the full, natural authority of a source. Meanwhile Bill Gates is still apparently involved in Microsoft, but now in service of Nadella, not the other way around. This will also be a big help to Gates in freeing up his own creative energy for his foundation (for better or worse.)

Here are three clips which serve as brilliant examples of the source principles in action.

Jobs on the role of source. The importance of one person holding the overall vision.

Recognising the seed of the idea which then grows and blossoms into something large.

Everything has a beginning, then more and more people are recruited in to take responsibility for realising part of the vision.

How money becomes a drain when you focus on it, rather than the vision.

Notice the energy level in the room as the budget is discussed. NeXT (being discussed in this clip) started with millions in capital and ultimately failed, yet Apple started with almost nothing and was a huge success. Perhaps the relationship to money was a factor in NeXT’s failure.

Elon Musk is the powerful source at the innovative motor company Tesla. Check out this book extract to see how Musk senses the very high level next steps for the initiative as whole. Focussing on what matters most: ‘whatever your job is now, your new job is delivering cars’; hiring and firing executives to save it from catastrophe; and even selling the company outright (of course with a deal that he remains in charge of the company).

You can also see here a risk of isolation. So obsessed and demanding about delivering on his vision that he’s created a climate of fear. Executives hid the truth from him when things were going badly. That’s a huge problem which could have destroyed the company. A source needs reliable information to be able to make decisions.

There are two jobs for founder to do well: Sourcing, which is sensing and executing the next creative/strategic steps for the initiative as a whole; and leadership, which is all about how you engage the people you have recruited to help you realise the vision. They are distinct activities. Sometimes what you need to do as source is not in the individual best interests of everyone. Decisions can be unpopular and may appear irrational. But to realise a vision, you have to take the next steps as soon as they become clear, otherwise the vision will not materialise, and the passion will drain from the initiative.

It sounds like Musk is a natural source, but perhaps more of an Industrial Age one, leading through fear and command and control. It can certainly be an effective way to realise a vision, but the lack of progressive leadership could become his downfall if he cannot keep the thousands of people working there, helping him to realise his vision, engaged.

This is a fascinating article to read through a source lens. Many tensions could be resolved if the co-founders worked out who is the source and who is the helper. Plus of course dealing with each of their projections to avoid being triggered by certain behaviours.